Morning Commentary: Junk maintains positive tone ahead of holiday; funds see outflows

By Paul A. Harris

Portland, Ore., Nov. 23 – The high-yield bond market was headed into the extended Thanksgiving holiday weekend in decent shape, a New York-based bond trader said at mid-morning on Wednesday.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was in lock step with the S&P 500 stock index at mid-morning, with both up 0.5% (HYG was 37 cents better at $75.11 per share).

Cash bonds were up 1/8 of a point to ¼ of a point, while the index was 3/8 of a point better on the morning, the trader said.

The Sabre GLBL Inc. (Sabre Corp.) 11¼% senior secured notes due December 2027 (Ba3/B) were better on the morning at 101 bid, 101¼ offered, according to the trader.

Those bonds were par ½ bid, 101 offered on Tuesday.

The refinancing deal, which priced at 98.134 to yield 11¾% in an upsized $555 million issue (from $535 million) on Monday, came in what was characterized as a “clubby trade,” playing to $550 million of reverse inquiry, and to a book containing around $1 billion of orders, sources said.

The new issue market remained idle ahead of Friday's early close in the bond market.

One deal is believed to be in the market heading into the long weekend.

Pegasus Merger Co./Tenneco Inc. began shopping a $1 billion offering of six-year senior secured notes (B2/B-), backing the buyout of Tenneco by Apollo, at the very beginning of November.

The buyout itself was completed nearly a week ago with the investment banks ponying up their committed financing even though the bonds and the $1.4 billion term loan continue to await syndication.

Bond investors continue to anticipate accommodation in the form of covenant concessions, the trader said.

Pending such accommodations, the debt appears to be in limbo, the source added.

Looking beyond the Thanksgiving holiday weekend, volume in the new issue market during the run-up to 2023 remains unclear, the trader said.

While some expect a significant increase in primary market activity, others doubt that such an increase will materialize before the end of the year.

“That's going to create an interesting technical situation because there is a decent amount of cash out there, with investors looking to put it to work on the new issue calendar,” the trader said.

Fund flows

The dedicated high-yield bond funds sustained $209 million of net daily cash outflows on Tuesday, according to a market source.

Actively managed high-yield funds saw $115 million of outflows on the day.

High-yield ETFs sustained $94 million of outflows on Tuesday, the source said.

With Wednesday’s daily fund flow numbers remaining to go into the tally, the combined funds are tracking $2.2 billion of net inflows for the week to Wednesday’s close, according to the market source.

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